Yesterday, 11 January, Donald Trump held his first press conference in months. What I witnessed in the markets during this talk was a very troubling sign, one that I think may last for quite a while in this administration. During the event, the market gave up all of its morning gains, dipping significantly as he spoke, then found the impetus to rebound later in the day. The takeaways:
$1. If Trump’s words are going to inspire this sort of volatility, there is no telling when entire sectors will crater based on his commentary. He said pharmaceutical companies are “getting away with murder” with the prices they charge for prescription drugs. Instantly the entire big pharma and biotech sectors fell 2% percent. Though it is not unique to Trump that the market reacts strongly and instantaneously to his public remarks (look at what the market does every time Fed Chair Janet Yellen speaks), there is truly no telling what Trump will say on any given day. In short-term trades, this worries me, but for the long-term, I guess we’ll be ok :/
$2. As I said in my Dow 20,000 post, the Dow has hit a truly stubborn resistance level at 20,000. Analysts are beginning to think the exuberant stock buying after Trump’s election may not hold up, as stocks has moved sideways or downward for a good two weeks. If this is the case, any stocks you currently hold that have enjoyed outsize growth since 8 November may deserve some re-investigation. Trimming and trailing is almost never a bad strategy when you are in the money. This also makes 20 January and important day as many who have shorted stocks betting on an overheated market will be forced to cover their calls. Individual stocks could be pushed higher due to short squeezes.
$3. Financials saw a pull back on Thursday ahead of much-anticipated earnings from the big banks on Thursday and Friday. Most expect good earnings reports from the banks but folks are waiting with bated breath to hear the forward guidance and investor calls. Either the banks have been overbought or they will show they have strong financials and room to run. We should know by the weekend.